Encouraging useful failure

One particular issue I’ve been thinking about with startup vs. big company culture (and that is referred to in a comment on my last post as well as comments over on Facebook) is how to encourage useful failure – failure where you learn something and then apply what you learned to improve next time.

This sort of grit to struggle through failure (what Seth Godin calls “The Dip”) to find the next level of success is rare in a big company. As is typical for me these days, I would argue this is an issue of incentive alignment.

At a startup, walking away from a failure means quitting and finding a new job, whereas pushing through to find the bigger success (what Marc Andreesen has called product-market fit) has the potential for tremendous upside in the form of stock options. The risks are higher, but it’s worth it.

Big companies and their annual performance reviews tend to reward piling up little successes rather than long struggles with a big success at the end. Sticking with a project that isn’t working can lead to a bad performance rating, so people look for a quick transfer to a different project where they can ride on somebody else’s coattails to success and keep their ratings up. Those that do stick around and try to turn a failing project around rarely benefit from the upside if they succeed – maybe they get one good rating that doesn’t make up for the previous poor ones.

At an organizational level, it’s also easier for the big company to walk away from a “failure” because the company has other projects and revenue streams. As The Only Sustainable Edge points out, companies that only do one thing (e.g. startups) are driven to be the best in the world at it because they have nothing else to fall back on. That lack of a safety net drives further achievement than they would achieve if they could give up more easily.

Another perspective comes from this description of successful startups from Glenn Kelman (CEO of Redfin): “They weren’t afraid of failure, and they didn’t “pivot” when faced with their first setback”. And sometimes by having the grit to stick with a project that they were initially doing for their own passion without regard for commercial potential, they found a way to inordinate success.

On the topic of encouraging useful failure, I could see some ways of trying to design an incentive system that would encourage people in that direction. Unfortunately, I think the people who work at a big company would rarely agree to such an incentive system. And in my experience, the people who would like such a system will try to do the right thing regardless of the incentive system.

So to re-state the question in a different way – is it possible to create more “startup” people who are willing to take chances and struggle through failure? I wonder if it would involve a re-design of our education system – the US education system is designed to reward people who follow directions and respond to incremental incentives (aka grades), and punishes those who fail even intermittently. Could any incentive system be powerful enough to overcome a lifetime of cultural conditioning?

Hard questions. I don’t have any answers. And, obviously, a lot of digressions. But I’ll keep exploring these sorts of topics over the upcoming weeks. Let me know if you have any thoughts.